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Wednesday, April 22, 2015

Mixed markets on mixed earnings

Dow rose 53, advancers barely over decliners & NAZ went up 2. The MLP index slipped a fraction in the 442s & the REIT index inched up a fraction to 330, Junk bond funds were mixed & Treasuries sold off. Oil & gold were off slightly.

Sales of previously owned homes climbed in Mar to the highest
level since Sep 2013 as job growth & cheap borrowing costs
helped sustain the progress in residential real estate. Closings increased 6.1% to a 5.19M annualized rate,
according to the National Association of Realtors. The forecast
projected sales would increase to a 5.03M rate. Prices rose by
the most since Feb 2014. Employment gains, low mortgage rates & better weather have the
potential of unleashing pent-up demand as the spring selling season gets
under way. Bigger wage gains & more housing inventory to make
properties more attainable would help provide another leg up for
residential real estate. Compared with a year earlier, purchases increased 13.5% in Mar on an unadjusted basis. The median price of an existing home surged 7.8% to $212K from $197K in Mar 2014. The number of existing properties on the market rose 5.3% to 2M from a month earlier. At the current pace, it would
take 4.6 months to sell those houses compared with 4.7 months at the end
of Feb. The inventory of unsold homes was up from 1.96M a
year earlier. “Housing is recovering but home prices are rising too fast,” the NAR said. “The only way to relieve housing cost pressure is to have
more supply coming onto the market.” Sales of single-family homes increased 5.5% to an annual rate
of 4.59M. The sales pace of multifamily
properties including condominiums advanced 11.1% to 600K. Cash transactions accounted for about 24% of all purchases. Sales of distressed property, including
foreclosures, accounted for 10% of the total, down from 11% a month earlier.

China has a $28T problem. That's the country’s total
gov, corp & household debt load as of mid-2014, according
to McKinsey, equal to 282% of the country’s total
annual economic output. Pres Xi Jinping’s gov aims to wind down that burden to
more manageable levels by recapitalizing banks, overhauling local
finances & removing implicit guarantees for corp borrowing that
once helped struggling companies. China’s also trying to prop
up a $10.4T economy that’s decelerating & probably will
continue to do so through 2016, or so says the IMF. The economy expanded 7%, the leadership’s growth target
for this year, in Q1, the weakest since 2009 & a far
cry from the 10% average China managed from 1980-2012. Against this backdrop, a barrage of recent policy moves out of China
in recent days comes into sharper focus. It also helps explain why
various parts of the gov don’t always seem to be working from the
same playbook. Last week, securities regulators clamped
down on margin lending that has helped fuel epic stock market rallies over the last year. Then officials unleashed about 1.2T yuan ($194B) into the economy & stock markets, by cutting the level
of deposits that banks need to hold in reserve with the central bank.
For large lenders, the reserve requirement was lowered a full percentage
point, to 18.5%, the PBOC’s most aggressive such step since
2008. In a separate move, the PBOC injected a combined $62B worth of capital into 2 state-owned lenders
that are referred to as policy banks, as they carry out gov
objectives. Also in recent weeks, China’s Premier Li Keqiang
has urged banks to support economic growth & roll over loans when
needed to key borrowers. The question is whether the calm remains as a weakening economy makes
it harder for borrowers to service interest payments & the gov
gets more tolerant of some companies going under in crowded sectors
such as real estate, steel & cement production.

Will report this PM on earnings, but they are not encouraging. Estimates from the analysts have been revised lower reflecting problems in Q1 & many are not matching those lowered estimates. Generally the best of the earnings are reported first, so the next ones can not be counted on to help the stock market. But Dow is just over 18K.